How to Read a 10Q: Agency.com
Posted Mon May 7 01:11:19 2001 by sbaldwin |
By Steve Gilliard
Source Document: http://www.sec.gov/Archives/edgar/data/1086403/
000091205701505984/0000912057-01-505984.txt
AGENCY.COM Ltd. and its subsidiaries (collectively the
"Company" or "AGENCY.COM") is an Internet, interactive
television and mobile business professional services
firm serving global markets. We provide our clients
with an integrated set of strategy, creative and
technology services that take them from concept to
launch and operation of their interactive business. We
deliver our services through our multi-disciplinary
teams of strategy, creative, technology and project
management specialists. These services help our
clients create and enhance relationships with their
customers, staff, business partners and suppliers.
| Unlike
some prominent Web consultancies, Agency.com has a reputation for
maintaining good client relationships. However, they are charging the
same high rates for this advice, which makes them just as vulnerable to
client cost-cutting. Furthermore, IMO anyone selling mobile solutions
without the words Motorola or Nokia in them is living in a dream. There
isn't even one protocol -- you pick, Bluetooth or WAP, GSM or CDMA.
Alphabet soup. |
INTEGRATED FULL-SERVICE OFFERING
We provide integrated strategy, creative,
technology and project management services in a
seamless package. We start from the initial assessment
of a client's positioning and needs and work through
post-implementation analysis and development. We
believe that our comprehensive integrated service
offering results in time and cost savings for our
clients and also increases the likelihood that their
projects will be completed successfully.
| And we charge you a pretty penny for it. |
AGENCY.COM CULTURE
Our culture is based on the principles of honoring
the value of individuals working as a team, growing
through learning and knowledge-gathering, embracing
change and encouraging innovation. We recognize that
we succeed as a firm only when clients benefit from
our work. We believe that nurturing our culture and
values enables us to deliver innovative solutions and
attract and retain top professionals. Our management
and operational infrastructure foster our culture. For
example, substantially all of our employees have an
equity stake in the company through our stock option
plan, and we have developed and put into practice a
number of internal mentoring and learning programs.
| No,
they aren't as embarassing as the fish, but because the recipe is
flavored differently doesn't necessarily mean that you aren't eating
liver. Nor does it necessarily mean that they are hiring experienced
people who actually know what they are doing. |
EXTEND OUR GEOGRAPHIC REACH
We believe that significant opportunities exist
for our services beyond our current locations,
including serving existing and new clients in other
markets. We have expanded, and intend to continue to
expand, our geographic presence in key locations based
on our clients' needs and market opportunities. We
plan to continue to expand primarily through organic
growth along with possible targeted acquisitions.
Extending our geographic reach allows us to better
serve our multi-national clients by providing services
locally through our regional offices while taking
advantage of our international resources and knowledge
base. We believe our ability to provide Internet,
interactive television and mobile business
professional services internationally provides us with
a competitive advantage. We currently have offices
located in the United States and Europe, and have
resources in additional locations through our minority
investments.
| We're
six year-old players in the Alley, and Kyle Shannon and Chan Suh are
both well known for early prominence in the New York scene. However,
one might wonder whether they've gained the deep level of expertise
needed to run a multinational company in that time. |
INTERACTIVE TELEVISION PRACTICE GROUP ("ITV PRACTICE
GROUP")
AGENCY.COM's iTV Practice Group offers a
comprehensive range of solutions supporting
interactive television services and programming. This
practice group was formed in late 1999 and has
generated successful solutions for multiple clients
across multiple broadcasting environments. Our
strategy and business planning services help companies
meet the challenges of the interactive TV market. We
work closely with our clients in order to deliver a
tailored solution that fits our clients' needs from
business plans to service creation, system engineering
and integration. In delivering our services, we help
our clients adapt the new technologies to their
businesses.
Our interactive services enable our clients to
enhance relationships with their customers. Our
interactive television solutions demonstrate the depth
and breadth of our experience and include: Electronic
Program Guides, portals, Mosaic browsing screens,
games, TV e-mail and chant news and information
service, catalog and shopping services delivered
across multiple platforms in multiple languages and
broadcast in multiple territories. Interactive TV
standards, broadcasting technologies, set-top boxes
and operating systems are all gradually evolving, but
at present they are complex and restrictive. Our iTV
Practice Group's technical team has taken these
restrictive technologies and built upon them to create
robust applications, tools and software. Our mission
is to improve the manner in which these technologies
are implemented and by doing so, better enable our
clients' ability to participate in the interactive TV
marketplace. We believe that we can provide companies
with a proven broadcast software infrastructure that
is platform-independent. Our software framework
enables broadcasters to build, test, deploy and manage
live high-quality interactive TV services--making the
technology a real tool for business.
Our interactive TV services focus on three main
areas:
- crafting an engaging television experience for
the target audience, using our expertise in
interaction and interface design;
- assist in conceiving or validating appropriate
business models to support interactive television
services and programming using our knowledge; and
- executing and implementing software solutions by
designing and deploying the technical infrastructure
necessary for system operators and content providers.
This includes our own tools and applications, as well
as best-of-breed products from hardware and software
specialists.
Given the complexity and need for speed inherent
in today's interactive TV environment, these services
are supported by AGENCY.COM's longstanding core
competencies in systems integration and project
management.
| Read
the above text closely. The word bullshit might spontaneously pop into
your mind. What interactive TV? TiVO's a freaking tape recorder on a
hard drive. WebTVis a bad joke. Interactive TV is pay-per-view and your
remote. I would love to see their client list and would pray to the
Lord above that they don't mean those webby things you see on NBC's NBA
games. Man, if that's it, call me underwhelmed. Look, if you really
wanted to do TV work, would you go to Agency? Or would you go to a
company with ties in TV and hire Agency as a contractor whose ideas
would likely be overruled by the people who knew how TV worked? What
has happened to the concept of preexisting relationships? |
MOBILE BUSINESS GROUP ("M-BUSINESS GROUP")
We have been engaged with mobile channels for two
years and have steadily built a portfolio of
world-class mobile solutions utilizing the services of
employees who are knowledgeable and experienced in the
complications of the Internet--regardless of the
channel in which it arrives.
The Company's M-Business Group services range from
business strategy and planning through implementation
and back-end integration using custom built
applications. We engage lateral thinking strategists,
information architects, designers, writers and account
services people who work together as a team from the
beginning. We believe that we create solutions and
look at them from multiple perspectives so the end
product is fully integrated and dynamic.
We execute business modeling for clients so they
can develop unique value propositions in the
increasingly competitive industry of mobile services.
We also devise campaigns that offer customers
appropriate services and messages, which are personal,
location relevant and timely. We believe that our
solutions can enable full personalization for
lifestyle and business applications, and develop
value-added services and the niche/unique offerings
that brands need in this fast-moving space.
We build mutually beneficial relationships between
our clients and third parties that help to extend a
client's brand in order to generate incremental
revenue. We believe that we are experienced in
creating the right mix and balance for clients and
partners. We understand the customer experiences of
mobile business and seek to optimize our clients'
business applications and marketing campaigns.
Our ability to be successful in building mobile
portals will depend upon a number of factors,
including our ability to understand what we believe to
be the key factors behind profitable m-commerce
operations, such as ensuring user security and
authentication or preparing for the delivery of
personal, localized applications through
global-positioning and location-based services. The
rapid development within the m-commerce space has the
potential to present significant opportunities over
the course of the next few years.
| Wow,
a whole two years. There are Palm developers with more experience.
Mobile is the current buzz word and, unfortunately, much of it is just
bullshit. No standards, no agreed upon protocol. You want mobile, hire
a European company. Why? Because they have more experience and more
people use mobiles to escape the antiquated phone services there. |
RECRUITING, RETAINING AND GROWING
We promote and support each employee's personal
growth through a variety of career development
programs. Internal knowledge management resources
gather the collective experience of client teams and
individuals. Informal, internal educational programs
expose staff to new experiences. Examples include
InspireU, a collection of employee-led training
courses, and Urban Desires, an online magazine owned
by our founders that is used to explore advanced and
artistic interactive experiences. More formal
programs, involving internal and external resources,
focus growth along specific career tracks. Examples
include seminars with outside experts and multi-day
training workshops.
Recruiting and training are important to us. A
dedicated recruitment group works with management to
fulfill staffing objectives on a regional and
international basis. New hires are commonly obtained
through referrals from current and former staff as
well as from recruiters and self-initiated referrals.
Once we have hired an employee, our focus shifts
to retention. In addition to offering competitive
compensation, we believe that we retain employees by
offering them a meaningful career path. Employees are
reviewed by supervisors, co-workers and employees they
supervise in a 360-degree review process that is
integral to our team approach.
| 360-degree
review? Are you kidding? IMHO, this is more nonsense by people who may
well be over their collective heads in running a large multinational
consultancy, not that they use the words. Urban Desires was a magazine
which they reportedly had killed. Now they pay good money to keep up a
hobby site. Yeah, that makes sense. Clients pay, indirectly, for the
bosses toys. |
NEW BUSINESS DEVELOPMENT
To target new clients, we have more than 30 New
Business Development professionals located in our
regional offices who seek to develop relationships
with companies that have businesses that can benefit
from interactive services and strategies, are willing
to make a significant commitment to pursuing
interactive opportunities and are located in the same
geographic regions as our offices.
Translation=salesmen. Well, actually in the dotcom
tradition, hotties in short black dresses and Prada
knockoff bags. |
COMPETITION
We compete with other providers of interactive
professional services. Our market is intensely
competitive, highly fragmented and subject to rapid
technological change. We expect competition to persist
and intensify in the future. Our current and potential
competitors include:
- interactive professional services firms, such as
Proxicom, Sapient, Razorfish, Organic, Scient,
MarchFirst and Viant;
- traditional strategic consulting firms, such as
Booz-Allen & Hamilton, Boston Consulting Group and
McKinsey;
- interactive advertising agencies, such as Modem
Media, Poppe Tyson and OgilvyOne;
- professional services groups of computer
equipment companies, such as Hewlett-Packard and IBM;
- traditional systems integrators, such as
Accenture (formerly Andersen Consulting), Cambridge
Technology Partners, EDS and Sapient; and
- internal resources of current or potential
clients.
| You
would go to Agency over the big 5 or Ogilvy or EDS? OK. You want to
believe that, cool. Believe it. I would remain sceptical myself. |
EMPLOYEES
As of December 31, 2000, we had over 1,500 full-time
employees. None of our employees are represented by a
labor union. We have experienced no work stoppages and
we believe our relationship with our employees is
good.
One can bet this number will be shrinking by quite
a bit in the near future. |
OUR REVENUES COULD BE AFFECTED BY THE LOSS OF A MAJOR
CLIENT
A substantial portion of our revenue is generated
from a limited number of major clients. In particular,
our ten largest clients accounted for approximately
41% of our revenues for the year ended December 31,
2000. If one of our major clients discontinues or
reduces the use of our services, our business, results
of operations and financial condition could materially
suffer. We cannot assure you that our clients will
continue to use our services in the future. In
addition, because a substantial portion of our revenue
is generated from a limited number of clients, the
non-payment or late payment of amounts due from a
major client could have a materially adverse effect on
our business, results of operations and financial
condition.
| That is pretty hefty. Those clients can whipsaw Agency like a rag doll. |
FAILURE TO PROPERLY MANAGE OUR OPERATIONS MAY
ADVERSELY IMPACT OUR BUSINESS
Our rapid growth has placed a significant strain
on our managerial and operational resources. From
January 1, 1997 to December 31, 2000, our staff
increased from approximately 60 to over 1,500
employees. If we cannot effectively manage our
operations, we may not be able to continue to grow, or
may grow at a slower pace. In order to manage any
future growth, we must continue to improve our
financial and management controls, reporting systems
and procedures, and expand and train our work force.
We cannot be assured that our controls, systems or
procedures will be able to support our expanding
operations or that we will be able to manage both
internal and acquisition-based growth effectively.
| Well, rapid growth has been known to lead to a
rapid decline. There isn't enough work in this sector for any company with a 1,500 person staff in this sector right now. |
In addition, our future success depends, in part,
upon the continued service and performance of Chan
Suh, Chairman, Chief Executive Officer and President,
Kyle Shannon, Chief People Officer, Kevin Rowe,
President-North America and Michael Mathews,
President-Europe. Particularly in light of our
relatively early stage of development, the fact that
many of our key personnel have worked together for
only a short period of time and the competitive nature
of our industry, we cannot assure you that we will be
able to retain the services of our senior management
and other key personnel. Losing the services of any of
these individuals at our current stage would impair
our ability to effectively deliver our services and
manage our company. These problems would negatively
affect our business, results of operations and
financial condition, as well as our ability to grow.
OUR DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES OWN
ENOUGH OF OUR SHARES TO CONTROL AGENCY.COM, WHICH WILL
LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS
Our directors, executive officers and affiliates
currently beneficially own approximately 71% of our
common stock. Accordingly, these stockholders could
control the outcome of any corporate transaction or
other matter submitted to the stockholders for
approval, including mergers, consolidations and the
sale of all or substantially all of our assets, and
also could prevent or cause a change in control.
| This
is extremely high. Shareholders should be wary of any company in which
so much power is concentrated in so few hands. Don't expect any
decisions that will not benefit them directly and overtly. It is
amazing that these guys own this much stock. Either it was a dog which
couldn't sell, or they just dumped enough on the market to make money
without any chance of either worker or public participation in their
corporate process. |
OUR STOCKHOLDERS COULD BE ADVERSELY AFFECTED AS A
RESULT OF OMNICOM'S AND ITS TWO DESIGNATED DIRECTORS'
POTENTIAL CONFLICTS OF INTERESTS
Omnicom has significant ownership positions in
some of our direct competitors. These ownership
positions may create conflicts of interest for Omnicom
and its director nominees as a result of their access
to information and business opportunities possibly
useful to us and to these competitors.
| See Razorfish. They cashed in bigtime on their IPO |
For the year ended December 31, 2000, we incurred
a net loss of $14.7 million. As a result of this and
prior losses, our accumulated deficit was $28.4
million at December 31, 2000. The year 2000 loss
resulted primarily from the restructuring charges and
other one time costs we incurred in the fourth quarter
of 2000 of $12.9 million, amortization of goodwill,
customer base and workforce of $17.2 million
associated with our acquisitions,
| Which
sucks, but it is not necessarily a bad thing, The company, unlike many
others, is in a position to be sold or merged, because its cumulative
debt is actually controllable. It is a solvable problem because it is
within the range of eventual profitability. The odds of profitability
at anything over $50m is unlikely. This
company is a prime candidate for merger or outright
purchase. |
Revenue from our international operations was $19.2
million for the year ended December 31, 1999, compared
to $47.7 million for the year ended December 31, 2000.
This represents an increase of 148% for the year. Net
loss from international operations was $0.5 million
for the year ended December 31, 1999 compared to $5.9
million for the year ended December 31, 2000. This
represents an increase of 1,080% for the year. The
increase in our international revenue of $28.5 million
for the year ended December 31, 2000, compared to the
year ended December 31, 1999 was due to the following:
$3.7 million was contributed by our Paris office
primarily due to our acquisition of Pictoris in
January 2000, $5.0 million was contributed by our
Amsterdam office which was part of our operations for
a full year in 2000 versus five months in 1999 and
$10.7 million was contributed by the Copenhagen office
which was in our operations for a full year in 2000
versus two months in 1999. The remaining $9.1 million
of this increase is attributable to an increase in
revenue from new and existing clients of our London
office.
Restructuring and other one time costs of $12.9
million are included in 2000 general and
administrative expenses. In December 2000, the Company
reorganized its operations through a restructuring
plan in order to more properly align its capacity with
the changing demand environment for interactive
services. The restructuring plan included the closure
of the Vail, Colorado office and other selected
company-wide staff reductions. Overall, the Company
reduced its workforce by approximately 190 employees,
130 of which were billable consultants. In connection
with the reorganization, the Company took a charge in
the fourth quarter of 2000 of approximately $12.9
million, all of which is included in general and
administrative expenses. Unpaid amounts of $11.1
million are included in accrued restructuring charges
as of December 31, 2000.
| Why was there a Vail office? Anyone planned to recruit work from the slopes? Amazing. |
REVENUES. Revenues were $87.8 million in 1999 and
grew to $202.1 million in 2000, an increase of 130%.
$85.9 million and $28.4 million of this growth related
to domestic and international operations,
respectively. The total growth of $114.3 million
primarily reflected increases in the number of
clients, average revenues per client and the number of
billable employees to meet the growing demand for our
services. The number of clients with revenues over
$100K increased from approximately 100 at December 31,
1999 to approximately 150 at December 31, 2000, the
average revenues per client for our top 20 clients
increased from approximately $2.6 million during the
year ended December 31, 1999 to approximately $5.8
million during the year ended December 31, 2000 and
the number of billable employees increased from
approximately 810 at December 31, 1999 to
approximately 1,180 at December 31, 2000
| Even
with their debt issues, this is a good sign. Why? Because they make
enough money to survive. No, losing $14m in one year is not a good
sign, but there is enough here to save. That is controllable. |
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